Experts debate value of reverse auctions

Federal procurement experts told lawmakers that the government needs to better explain the nuts and bolts of how reverse auctions work to avoid turning the relatively new contracting method from a money saver into a money waster.

"No contracting method is good or bad," said Rep. Richard Hanna (R-N.Y.), chairman of the Small Business Committee's Contracting and Workforce Subcommittee, which held a joint hearing with the Veterans' Affairs Committee's Oversight and Investigations Subcommittee on Dec. 11. But reverse auctions can precipitate bad results if used the wrong way, he added.

He said complex projects such as building construction should be off-limits for reverse auctions, and he pointed to a lack of oversight as a factor in misuse of the procurement approach.

"Despite the fact that reverse auctions accounted for nearly a billion dollars in contracts in fiscal 2012, there is no federal law or regulation that addresses this procurement method,” Hanna said. “It seems we are making it up as we go along, often to the detriment of small businesses."

He referenced a Dec. 9 report by the Government Accountability Office that evaluated four agencies' use of reverse auctions to buy IT and medical devices. For the most part, auditors concluded that more guidance was needed.

"We found that government agencies were increasingly using reverse auctions as a means to drive down prices but without adequate guidance to ensure potential benefits were maximized," said Michele Mackin, GAO's director of acquisition and sourcing management, in testimony to lawmakers. She said the company that runs the auctions for the government -- FedBid -- charges a 3 percent fee for its work. Who pays the fee and how it affects reverse-auction savings are not well understood by federal agencies, she added.

Hanna said FedBid earned $13.4 million in reverse-auction fees in fiscal 2012.

Mackin responded later during the hearing that GAO had concerns about how those fees might affect bids that are supposed to save federal buyers money because the fee could cancel out the savings on smaller contracts.

"In some cases, it would be better just to buy [commodities and goods] off federal schedules," she said.

Bill Sisk, deputy commissioner of the General Services Administration's Federal Acquisition Service, told lawmakers that reverse auctions are only one tool in a growing range of procurement options that include multiple-award contracts, blanket purchase agreements and purchasing schedules. GSA introduced a reverse-auction platform in July that seeks to get federal users lower prices on common office supplies and IT commodities such as laptops, tablet PCs and monitors.

Sisk was careful to qualify how agencies should approach reverse auctions, but in the end, he said the vehicle can offer savings and value.

"Based on data since its inception, GSA’s reverse-auction platform is one tool that, with proper training and use, can provide savings to agencies, help them achieve small-business goals, and provide visibility into spending data that, over time, can help agencies make better acquisition decisions,” he said.

Training is the key, and GSA is teaching users how to make the best use of reverse auctions. "GSA offers, on average, four training sessions per week in a variety of forums," he said. "To date, over 50 sessions have been conducted and over 2,000 individuals trained on the platform."

Better codification of techniques for using the platforms and a common set of rules would help, said Mackin, Hanna and another witness, Louis Celli, director of the American Legion's Legislative Division. Celli said the auction technique was particularly hard on small companies that cannot afford to price their products as low as larger suppliers and consequently could be boxed out of bidding.

Mackin said writing rules into the Federal Acquisition Regulation would top her wish list, followed by establishing a set of governmentwide best practices for reverse auctions.

Given the auctions’ recent emergence, however, amending the FAR to accommodate them might be short-sighted, said Major Clark, assistant chief counsel for procurement policy in the Small Business Administration’s Office of Advocacy.

"Reverse auctions continue to evolve," he added. "I'm not convinced [they need] to go into the FAR at this point."